The Observer Network by Nguyen Jaki
As part of the latest tariff offensive, U.S. President Donald Trump announced on Thursday that he would impose tariffs of 50% on imported kitchen cabinets and bathroom laundry tables and tariffs of 30% on soft mattresses furniture; he threatened that long-standing drug tariffs would eventually “land the boots” and a tax rate of up to 100% would make the industry involved mourn again.
However, Reuters reported on the 26th that Chinese manufacturers are quite calm in the face of the latest US tariffs that will take effect on October 1st. This British media specially went to Lecong, Foshan, Guangdong Province, which has the title of "China's Home Furnishing Trade and Innovation Capital", only to find that local businesses showed indifference when asked about this matter. They told the British media that many Chinese furniture manufacturers gave up the American market very early and sought another way out.
According to Hong Kong's South China Morning Post, U.S. Investment Bank Jeffrey also released the latest report on Friday, noting that Trump's tariffs on patents and branded drugs "never affect China's medical health industry", because Chinese pharmaceutical companies make a "very low share" of U.S. drug sales, and mostly by signing licensing agreements with multinational pharmaceutical companies to expand the U.S. market.
"Chinese businesses are very calm"
According to Reuters, like other industrial towns in China's "World Factory" in the Yuzhang Delta region, Lojong owns a huge manufacturing cluster. There are more than 180 furniture shopping malls, retailers, wholesalers and distributors are concentrated, and the products sold should be all the way from leather chairs to high-end leather sofas.
According to official website of Lecong Furniture City Chamber of Commerce, more than 30 years ago, this town became one of the earliest professional furniture markets in China. At that time, it attracted many international customers, including those in European and North American markets with more considerable profits and profit margins.
In recent years, however, with geopolitical tensions, tariff pressure and rising labor and production costs, Chinese manufacturers have adjusted their business strategies.
Feng Junyuan, sales manager, told Reuters that her company’s main clothing business has long reduced dependence on the U.S. market. Currently, about 60% of the products are sold at home, 40% are sold overseas, and the main markets are India and Africa.
“From November last year, when tariffs were very clear, we didn’t think about the US market anymore, no one came to buy there, and we didn’t try to sell to the US anymore, and the cost was too high,” she said.
Jin Yun, another owner who sells mid-to-high-end sofas, also said, "Last year's tariff increase had a great impact. At that time, we still had two American customers, but after the tariffs came into effect, they finally canceled the order, and the business went yellow."
He also mentioned that this year’s business performance generally, with customers mainly concentrated in the Middle East and Southeast Asia region, “makers in all industries face a lot of problems, not just the furniture industry.
Data show that U.S. furniture imports will reach US $25.5 billion in 2024, 60% of which will come from Vietnam and China. The New York Times analysis pointed out that in recent years, the share of furniture, kitchen cabinets and bathroom cabinets imported from the United States has been increasing, and tariffs may deal a heavy blow to consumers and home builders.
American Furniture Enterprises: Unable to Afford Local Production
Reuters pointed out that before the tariff increase, Trump promised in August to help "revive the furniture industry" in North Carolina, South Carolina and Michigan. However, according to U.S. government data, the number of employed people in the local furniture manufacturing industry has halved to only about 340,000 since 2000.
Analysts reiterated their warning that Trump's targeting of sofas and cabinets may trigger price increases and have long-term effects. Industry executives are also worried that there may be a gap in domestic furniture manufacturing capacity in the United States, considering that the country's furniture supply is highly dependent on imports from China, Mexico and Vietnam.
Earlier this month, Gary Friedman, CEO of RH, a high-end household goods company in the United States, said: "Expanding local production capacity requires years of investment to build facilities and cultivate labor, and most companies in the industry cannot afford such costs."
Under the influence of new tariffs, the stock price of furniture companies that depend on imports in the United States fell on Friday. Like RH, the chief executive of the U.S. home decoration retail company Williams-Sonoma, recently also mentioned similar concerns at the earnings conference. On the same day, the William-Sonoma stock price fell by 2 percent, and RH fell by 4 percent.
The company’s position in the U.S. was relatively better compared to the higher share of domestic operations. The share price of Michigan-based U.S. furniture manufacturer La-Z-Boy rose by about 2 percent and Ethan Allen’s share price by 1.8 percent.
Ethan Allen’s CEO, Farooq Kathwari, said, “We will continue to assess the impact of (tariffs) but believe our strong production layout in North America will help us address these challenges.”
Lithuanian furniture manufacturer SBA Home, which supplies to the Swedish furniture retailer IKEA, and its chief executive, Jurgita Radzevičė, noted that it is not clear what tariff policy its exports to the United States will be subject to.
“We are not sure whether the new tariffs will overlap on the existing basis or replace the existing taxes, nor how these policies will actually apply to European companies,” she said, adding that the company is pushing forward a furniture factory project in North Carolina.
"There are very few cribs made in the United States." Aaron Zagha, CEO of Newton Baby, a baby furniture company, admitted that the company will have to raise the price of cribs made in Vietnam and sold for $600, which will depend on the overall tariff rate. The company also sources its products from Thailand, Turkey, India and Pakistan.
Arin Schultz, chief growth officer (CGO) of Naturepedic, a private mattress and furniture company, also revealed to Reuters that after Trump announced the new tariffs, the company had suspended the purchase of a batch of fabric headboards from India. "For these fabric headboards, the listing price of our original products will definitely be raised."
In recent months, prices of all kinds of commodities, from clothing to television, have risen in the United States, but market research agency eMarketer’s Zak Stambor told Reuters that it would take some time for a new round of tariffs to show the impact on consumers.
“Most festival goods will be imported by October 1, so the new tariffs are unlikely to affect holiday sales,” he added, adding, “it is undoubtedly an additional barrier for home and home retailers who have faced downward pressures in the real estate market.”
"It has almost no impact on Chinese pharmaceutical companies"
On the same day, Trump also announced a 100% tariff on all imported brands and patented drugs, unless the relevant companies “begin to build” pharmaceutical factories in the United States.
The New York Times also found that the new drug tariffs did not include replicas, but only targeted branded drugs, which could be a victory for Indian replicate manufacturers, as profits were thin and they were unable to move production to the United States.
After the tariffs were announced, the share price of the pharmaceutical industry was the first to come under pressure. The share price of Novo Nordisk in Denmark once fell by 3.1%, GlaxoSmithKline in the UK fell by 1.1% and AstraZeneca in the UK fell by 1.6%. The share price of Australia's Jett Company (CSL) fell to a six-year low, Japan's Sumitomo Pharmaceutical Co., Ltd. fell by more than 3%, and pharmaceutical stock indexes in Hong Kong, China and India also fell by varying degrees.
On Friday, analysts at U.S. Investment Bank Jeffrey released a new report saying that "the tariffs will hardly affect China's leading healthcare companies."The study said the proposed tariffs were "not a major concern for Chinese pharmaceutical companies" and "never affect the operations of China's major pharmaceutical companies" because these companies "share a very low share of U.S. drug sales."
Jeffrey pointed out that in recent years, most Chinese biotech companies or pharmaceutical research and development companies in the pre-commercial phase have expanded to the U.S. market by signing licensing agreements with multinational pharmaceutical companies.
These companies are protected because they are “at least one to two years away from a potential commercialized market in the United States” and their revenue is primarily from patent fees rather than direct drug sales.
The report also pointed out that for Chinese CXO companies (pharmaceutical outsourcing services), the impact of the new tariffs is also "controllable" because they already have production facilities in the United States, and higher production costs in the United States will be borne by its customers, that is, multinational pharmaceutical companies.
China's leading CXO companies, such as Pharmaceutical Cantor, Kelley Ying, Boten, and others, export products to the United States mainly from raw drugs, biopharmaceutical raw liquids and intermediates, which are not covered by customs duties.
According to other reports, for Trump's new drug tax, many Chinese pharmaceutical companies have said there is no major influence or not affected.
For example, the F-627 is one of the few innovative Chinese drugs that are exported directly to the United States.The F-627 was previously sold to the United States for CMO production (pharmaceutical contract processing outsourcing), packaging and shipment in Germany.
Faced with tariff threats, the company has rapidly adjusted its supply chain strategy and plans to transfer the product’s quality release and delivery link to the U.S. mainland. The F-627 is expected to be delivered from the U.S. mainland as soon as next year, which has no significant substantial impact on the drug’s sales in the U.S.
On the same day, Zhejiang Huahai Pharmaceutical also said that it is still evaluating whether its products will be affected by Trump's new tariffs. The company already has an annual production capacity of 7 billion tablets in Charlotte, North Carolina.
However, Alex Schriver, senior vice president of the Pharmaceutical Research and Manufacturers Association of America (PhRMA), an industry lobbying group, pointed out that a 100% drug tariff could also significantly push up costs and even lead to drug shortages.
He stressed to the New York Post that drugs have always been exempt from tariffs, adding that “every penny spent on tariffs will make the U.S. manufacturing industry invest a penny less and make the development of future therapies and cures a penny less.”
An anonymous source from a brand pharmaceutical company in Taiwan told Reuters that it would take at least five years to build a new pharmaceutical factory in the United States and complete certification without considering issues such as supply chain or labor shortages.
“So the ultimate biggest victim will be the people who need the drugs,” he said.
“The global supply chain is very complex, the pharmaceutical industry is the most complex of them, and he’s not as simple as making iPhones with a few small screws,” said Evan Seigerman, a BMO capital market analyst, who said tariffs didn’t play much in attracting manufacturing back to the U.S., and most pharmaceutical companies might now consider making permanent production decisions after the end of Trump’s term.